FirstEnergy's Pennsylvania Default Service Program

CRE 00001
Published On: 10/26/2012

Question: Is there a credit-based tranche bid limit in the Default Service Program auctions?

Answer: No, there is no credit-based tranche bid limit.  There is a load cap that limits the number of tranches any bidder can bid across all products within an auction.

CRE 00002 (revised 05/15/2013)
Published On: 11/02/2012

Question: Bidder applicants are given an option to submit either an LOC or cash for the pre-bid security. Can we propose changes to the LOC and if so when would those be due?

Answer: Yes, during the Part 1 Application process, you can propose redlined changes to the Pre-Bid Letter of Credit. The Word version of the Pre-Bid LOC can be found here: http://www.fepaauction.com/Documents/SupplierDocuments.aspx. The deadline for all Part 1 Application documents for an upcoming auction is announced on the Calendar page of the Information Website: http://www.fepaauction.com/Calendar.aspx.

CRE 00003
Published On: 11/08/2012

Question: What is the timeline for the return of the pre-bid security?

Answer: Once the auction results are approved by the Commission, a Pre-Bid Letter of Credit will be marked as canceled and returned, and any pre-bid cash deposit will be transferred to the account designated on the bidder's Part 1 Application.  This will occur as soon as possible if the bidder has won no tranches, or after the winning bidder has signed the Supplier Master Agreement (SMA) and has complied with all creditworthiness requirements of the SMA for the tranches that it has won.

CRE 00004
Published On: 11/26/2012

Question: There are multiple beneficiaries on the Pre-bid Letter of Credit. Can you please confirm that if the Pre-Bid LC is drawn upon, payment will be made to only one account?

Answer: The Companies may do a partial or full drawing in accordance with the terms and conditions specified in the Pre-Bid Letter of Credit.  The Companies would use Annex 2 of the Pre-Bid Letter of Credit for that purpose.  The amount specified in Annex 2 would be directed to a single account.

CRE 00005 (revised 10/10/2014)
Published On: 11/26/2012

Question: (1) With respect to the letter of credit that must be maintained during the term of the Supplier Master Agreement, would each letter of credit have a single EDC beneficiary or would only one letter of credit with multiple EDC beneficiaries be required if the bidder were to be awarded tranches with multiple EDCs to serve full requirements Default Service for those EDCs?

(2) In the event that a bidder is awarded tranches to serve full requirements Default Service under multiple EDC auctions (e.g., for Met-Ed, Penelec, Penn Power, and West Penn Power), will margining be done on an EDC-specific basis (i.e., Total Exposure Amount calculating exposure of that particular EDC only), or would it take into account and aggregate the exposure of all of the EDCs to DS Supplier?

(3) Are the EDCs required by the SMA or any other provision of the Default Service Program to maintain a minimum standard of credit quality (e.g., Minimum Rating as defined in Section 6.4 of the SMA)?

Answer: (1) Each letter of credit that must be maintained during the term of an SMA will have a single EDC beneficiary.

(2) Margining will be done separately for each EDC.

(3) No. The SMAs do not include credit requirements for the EDCs and there is no provision of the Default Service Program requiring the EDCs to maintain a minimum standard of credit quality.

CRE 00006 (revised 07/08/2014)
Published On: 12/03/2012

Question: Can a Pre-Bid LOC be used for consecutive auction events? Our intent would be to instruct the Independent Evaluator in our Part 2 Application for the first event to retain the LOC for the second event if it is allowed.

Answer: Yes, the Pre-Bid Letter of Credit can be kept open for subsequent auctions.  The Expiration Date must be at least thirty days following the date of the last auction for which the LOC will be used.

CRE 00007 (revised 10/10/2014)
Published On: 12/03/2012

Question: How do we deposit cash as pre-bid security?

Answer: Per page 15 of the Part 2 Application, "If you are submitting a cash deposit, you must attach a copy of your W9 (for tax ID) and a copy of your banking information on your company's letterhead, signed and dated."  To make a cash deposit, request the wiring instructions from the Independent Evaluator.  Also on page 15 of the Part 2 Application, you must provide wiring instructions that will be used to return your cash deposit.  This information is needed so that the cash can be returned promptly to the bidder.

CRE 00008 (revised 10/10/2014)
Published On: 07/29/2013

Question: Sections 6.1 of the Supplier Master Agreement (SMA) requires the Default Service Supplier to "inform the Company immediately of any changes in its credit rating or financial condition," and Section 6.8(a) of the SMA requires the DS Supplier to "inform the Company immediately of any changes in its credit rating or financial condition or that of its Guarantor." Can you provide examples of when the Companies want to be notified?

Answer: A couple of examples:  (1) If a Supplier's (or its Guarantor's) credit rating from any of the three SMA-referenced rating agencies changes, notification to the Companies is required.  (2) If a material event occurs that detrimentally impacts a Supplier's (or its Guarantor's) financial condition, such as what would be reported in an 8-K filing, then the Companies require notification.

CRE 00009 (revised 02/23/2015)
Published On: 12/09/2013

Question: In a follow-up to FAQ CREDIT 00006, may a Supplier request that the Pre-Bid Letter of Credit posted for the upcoming auction be held by CRA for future auctions? The Supplier would instruct the bank to amend the letter of credit to $1.00 in between auctions, amending it by increasing to the proper dollar amount at the time of the next auction. The pre-bid letter of credit would not expire for one calendar year hence.

Answer: Yes, CRA can hold the Pre-Bid Letter of Credit on file.

CRE 00011
Published On: 10/14/2014

Question: What is the amount per tranche required for the "maximum Pre-Bid Security" discussed in the Part 1 Application, necessary for applicants with foreign guarantors?

Answer: The pre-bid security amount is $250,000 per tranche of desired initial eligibility, regardless of whether there is a foreign guarantor.

CRE 00012
Published On: 10/14/2014

Question: Can you confirm the limit amounts necessary for inclusion in Section 1 of the Guaranty (Appendix G of the Default Service Supplier Master Agreement) for "Option 1" and "Option 2" in that paragraph? Additionally, if we are currently a Default Service supplier and we win any products in the October 2014 DS auction, is it possible to extend the guaranty already in place to cover any new products won, or is a new guaranty required?

Answer: The amounts for Option 1 or Option 2 are at the discretion of the Guarantor.  The Guarantor can issue a guaranty amount up to the Maximum Credit Limit based on the Guarantor's Credit Rating per Appendix A of the Supplier Master Agreement.  If the Total Exposure Amount exceeds the Guaranty amount, then a Margin call may be required per Section 6.5 of the Supplier Master Agreement.  Since this is a new delivery period, the Companies prefer that a new guaranty be issued, which is Appendix G of the Supplier Master Agreement.

CRE 00015
Published On: 03/11/2015

Question: If a Default Service Supplier is not granted an unsecured line of credit based on its creditworthiness, and is also not granted an unsecured line of credit based on the creditworthiness of a guarantor, is there a minimum security deposit that must be provided when the SMA is executed if the DS Supplier is a winning bidder? Or may such DS Supplier provide no security deposit upon execution of the SMA and instead provide cash or a letter of credit only if and when, during the term of the SMA, the Total Exposure Amount exceeds the Minimum Transfer Amount (assuming that such DS Supplier’s credit limit would be $0), pursuant to a request to post Margin?

Answer: If a bidder wins Industrial tranches and has no unsecured credit, then security of $140,000 per Industrial tranche would be required per Section 6.3 of the Supplier Master Agreement (SMA).  If a bidder wins Residential and/or Commercial tranches, the MTM credit exposure methodology in Appendix B of the SMA is used.  If the Total Exposure Amount exceeds the Minimum Transfer Amount (the bidder has zero unsecured credit), then security would be required at the time the SMA is signed.

CRE 00016 (revised 12/03/2015)
Published On: 09/10/2015

Question: The applicant is not rated. Can we still get some unsecured credit by submitting financials? The financials are not audited.

Answer: Per Section 6.4 of the Supplier Master Agreement, in order to be granted an unsecured line of credit, the Default Supply Supplier or its Guarantor (if the DS Supplier is providing a Guaranty) must be rated by at least two of the following rating agencies: S&P, Moody's, or Fitch.

CRE 00017
Published On: 09/30/2015

Question: If an applicant submits cash as their form of pre-bid security, are they bound to that form of security throughout the entire supply period should they win tranches in the auction? Or is an applicant allowed to use cash for pre-bid security and then execute an approved letter of credit after the auction results are known?

Answer: The pre-bid security is returned to bidders once the auction results are reviewed by the Commission. The form of security chosen if the bidder becomes a Default Service Supplier can differ from the form of pre-bid security.  Section 6.7 of the Supplier Master Agreement lists the acceptable methods for posting security as a Default Service Supplier.

CRE 00018 (revised 03/13/2017)
Published On: 03/13/2017

Question: The Part 1 Application indicates the following:

A potential bidder that had secured approval for an alternate form of guaranty from any previous Default Service procurement auction held by one or more of the Companies and wishes to use the same alternate form of guaranty can renew this by submitting the following:
1. The alternate form of guaranty from any previous Default Service procurement auction by the Companies;
2. The enforceability opinion from any previous Default Service procurement auction by the Companies;
3. A certification that the text of the alternate form of guaranty is exactly the same as the alternate form of guaranty that had been previously approved from any previous Default Service procurement auction by the Companies;
4. A certification that the text of the enforceability opinion is exactly the same as the enforceability opinion that had been previously approved from any previous Default Service procurement auction by the Companies.

Are the Companies requesting that these certifications be provided by in-house legal counsel?

Answer: The only certification from outside counsel is the enforceability opinion. The applicant must provide an enforceability opinion with respect to the alternate form of guaranty from its  counsel. The accompanying enforceability opinion must be from a law firm of national (i.e., United States) standing, must not be weaker than would be industry norm, and must contain only those qualifications that would be typical. The opinion shall name the Companies and explicitly state that the Companies are entitled to rely on the opinion for purposes of the transaction at issue.

CRE 00019
Published On: 04/22/2020

Question: We have already posted the pre-bid security, I am just wondering that if in the event we win tranches, when will the DS Supplier post-bid security need to be posted?

Answer: FEPA’s Credit department will reach out to winning suppliers within 24 hours after the auction results have been released, and post-bid security must be established as soon as possible. The pre-bid security will not be returned / cancelled until the post-bid requirement has been met. If a bidder does not win tranches, the pre-bid security will be returned / cancelled as soon as practical.

CRE 00020
Published On: 10/03/2023

Question: We don't have financials for the entity participating in the auction but there is a consolidated financial for the parent company. We are also not seeking any unsecured credit as we will post collateral to support our bids. Would we still be required to post a financial report or can we submit something else in lieu of it?

Answer: You should use the parent company as a guarantor and submit their financial information with your Part 1 Application.